Egypt's food and beverage draws investor interest despite COVID-19

Experts see Egypt's potential as a "perfect hub for export-oriented agri-businesses"

  
A grocer stocks bags of rice and macaroni at a government outlet selling subsidised goods in Cairo, Egypt August 29, 2017.

A grocer stocks bags of rice and macaroni at a government outlet selling subsidised goods in Cairo, Egypt August 29, 2017.

REUTERS/Mohamed Abd El Ghany

Food-and-beverage industries remain one of the most lucrative sectors for investors in Egypt, a populous country where the lion’s share of household spending is on food. Zawya spoke to industry experts about its robustness and whether COVID-19 has impacted its investment prospects.

Food and beverage accounts for 37 percent of an Egyptian household’s annual spending. The scope of the industry is quite broad, encompassing businesses that produce, process, distribute and retail these products. 

Agriculture contributes 13.6 percent to Egypt’s GDP and accounts for nearly 27 percent of all jobs, according to Egypt’s Industrial Development Authority.

With a population of nearly 100 million, Egypt has more than 90,000 food manufacturing companies, which are mostly micro, small and medium-sized businesses, according to a 2017–2018 economic census.

Ahmed El Guindy is a managing partner at Tanmeya Capital Venture, a private equity that is particularly interested in agribusinesses. “As an investor, I never look into fresh produce because usually the value added is not significant and the profit margins are very small in this sub-sector. However, we are interested in business models that focus on the processing of agricultural crops while avoiding the risk of primary farming” he said.

“What we basically look at is the company’s ability to grow, or in other words, its scalability whether in terms of catering to the local market or exporting products,” El Guindy added.

“Egypt exports food products worth $2.7 billion a year. Only one third of these products are processed so there are big opportunities for more food processing in Egypt,” said Tamer El Raghy, managing director of Acumen Capital Partners that specializes in investing in early-stage businesses in the agri-food sector.

Egypt’s warm weather, proximity to Europe and direct access to sea and air shipping make it a perfect hub for export-oriented agri-businesses, said El-Raghy. “There is also a rising demand for processed vegetables in Egypt’s local market due to changing consumption trends,” he added.

However, food distribution is a massive challenge. According to Guindy, there are around 400,000 points of sale in the country, hence the need for a robust distribution model.

“Two segments will continue to outsource their distribution business: multinational food companies and small local food manufacturers,” he explained. “Only large local companies, which are quite few, rely on their own fleets and have enough scale to run their own distribution operations. Hence, the distribution market is quite big and will keep getting bigger.”

Investors also see great potential in digitized logistics and in technology for enhancing food delivery and distribution. For over a decade, food-delivery platform Otlob led in the Egyptian market, but this dominance was broken with the arrival of ElMenus, Uber Eats and Glovo. Startups such as Fatura and Maxab, focusing on optimizing the supply chain network for food and grocery retailers, were launched in 2019.  

Hatem Alaa, Head of Consumer and Health Care at EFG Hermes, sees “many opportunities” in the food retail sector. “The sector is very attractive because modern trade penetration rate in Egypt is still very low. Modern trade retailers represent only 15–20 percent of the entire food retail market.”

Alaa adds that there is still more room for investments in the food hospitality sub-sector, pointing at the low ratio of food service outlets (from quick-service to fine dining restaurants) to the Egyptian population, which grows by 2 percent annually.

Most food-and-beverage businesses are facing major setbacks due to the partial lockdown imposed to curb the spread of the coronavirus. However, investors continue to bet on food services.

“Long-term patterns are all in favor of the industry. Any investor always looks five or ten years ahead, and the outlook for the industry is a hundred percent great,” said Alaa Hashim, founder of and Executive Partner at Tanscendium, a boutique investment management and turn-around management firm. According to Hashim, Tanscendium is looking out for businesses that can synergise with Cilantro, a leading coffee shop chain in the country, which it acquired in 2016.

“People will not stop eating or drinking,” Hashim said. “We have a fundamentally young population and a rising middle class that want to go out. [Eating out] is an obvious way of socializing, making a statement about one’s social status, and all that is associated with the young generation.”

(Reporting by Noha El Hennawy; editing by Seban Scaria)

(seban.scaria@refinitiv.com)

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